Tax Credits and Other Relief for Employers and Individuals in the COVID-19 Relief Bill HR 133

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By Sukhpaul Hundal

Effective since December 27, 2020, COVID-19 relief bill HR 133 contains business-friendly provisions, including a second round of Paycheck Protection Program (PPP) funding. The bill provides relief to individuals as well, including extended employment benefits, stimulus payments, and other tax relief.

Stimulus Payments

As part of HR 133, the IRS will provide a second Economic Impact Payment, or stimulus payment, to most Americans to help them recover from the economic difficulties of the coronavirus pandemic. Individuals will receive stimulus payments based on their adjusted gross income on their most recently filed income tax returns. The stimulus amount is as follows:

  • $600 per taxpayer ($1,200 total for married couples filing jointly).
  • $600 per qualifying child (under age 17).

The stimulus amount is reduced by $5 for every additional $100 in adjusted gross income that is greater than:

  • $150,000 for joint filers.
  • $75,000 for single or married filing separately filers.
  • $112,500 for heads of household.

Foreign nationals are eligible for Economic Impact Payments if they are:

  • Green card holders or meet the substantial presence test for the calendar year.
  • Nonimmigrants that pay income taxes and are not listed as dependents on a tax return.
  • Part of a mixed immigration status family where at least one member holds a social security number (SSN). SSNs are required to receive stimulus payments for children.

Families who do not receive a stimulus payment or receive a reduced payment due to exceeding the income limitations may be eligible for an additional credit if their adjusted gross income on their 2020 tax return entitles them to a larger stimulus payment. The recovery rebate credit is applicable for both the original stimulus payments authorized by the CARES Act as well as the stimulus payments authorized under HR 133.

Extended Unemployment Benefits

The CARES Act offered enhanced unemployment benefits to help counter the impact of the coronavirus pandemic. HR 133 extends the eligibility period for these benefits from 39 weeks to 50 weeks. Recipients of unemployment benefits will receive an additional $300 per week in federal unemployment assistance through March 14, 2021.

HR 133 Tax Benefits for Employers and Certain Organizations

HR 133 extends many deductions and tax credits available to certain organizations, and it ushers in new tax relief measures, too.

The refundable payroll tax credits for paid sick leave and family leave that were available to employers as part of the Families First Coronavirus Relief Act (FFCRA) have been extended through March 31, 2021. These credits reimburse employers for the cost of providing paid sick and family leave to their employees related to COVID-19.

The employee retention credit has been extended through June 30, 2021 and the amount of credit available has increased. Employers can receive a refundable payroll tax credit for 70% of qualifying wages, up from 50% previously. The maximum wage amount eligible for the credit has been changed to $10,000 per quarter, an increase from the $10,000 per year allowed previously. A 20% reduction in gross receipts is required to qualify for the credit as compared to the same quarter in 2019. Previously the required reduction was 50%.

Employers have also received additional tax relief in the form of meal deductions. For the years 2021 and 2022, meal expenses are 100% deductible for businesses. Previously meals were only 50% deductible.

Recognizing the additional costs facing educators during the pandemic, HR 133 provides an educator expense tax deduction which allows educators to deduct the costs of personal protective equipment, disinfectant, and other supplies.

Tax Changes for Individuals under HR 133

There are also extensions and expansions of tax deductions available to individuals in HR 133 legislation.

Employees can now further defer the repayment of their share of social security taxes for wages paid between September 2020 and December 2020. The deferred social security taxes must now be paid back by December 31, 2021. Previously, the repayment was due by April 30, 2021.

The medical expense deduction floor is reduced from 10% to 7.5% permanently. This means that individuals can deduct medical expenses that exceed 7.5% of their annual adjusted gross income.

If taxpayers had a decline in income in 2020 that would normally result in a reduced earned income tax credit (EITC), they can use their 2019 income to calculate the EITC and certain other credits.

The ability to deduct up to $300 of charitable contributions for those claiming the standard deduction has been extended to include contributions made in 2021. Additionally, for 2021, married taxpayers claiming the standard deduction and filing jointly may deduct up to $600 of charitable contributions. The maximum deduction remains $300 for 2020.

The tuition deduction has been eliminated and the phaseout for qualification for the lifetime learning credit has been changed to begin phasing out starting with income from $80,000, or $160,000 for taxpayers filing jointly. The credit phases out completely at incomes of $90,000 or more for individuals, or $180,000 for joint taxpayers.

Miscellaneous Tax Credit Extensions

Several additional credits and other provisions have been extended, including the following:

  • New Markets Tax Credit Program.
  • Work Opportunity Tax Credit.
  • Employer credit for paid family and medical leave.
  • Exclusion for employer payments of student loans.
  • Nonbusiness Energy Property Credit.
  • Fuel cell vehicle credit.
  • Energy efficient homes credit.

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HR 133 brings welcome tax credit extensions and expansions that benefit both businesses and individuals alike. For help maximizing your 2020 tax savings, please contact your trusted Chugh CPAs, LLP professional.